Understanding the Rules of Severance Pay in the US

When an employee is involuntarily dismissed from their job, they may be eligible for severance pay. This is a fee paid to the employee after their dismissal, and is usually based on the length of employment. Severance pay is not mandatory, but employers may offer it as an incentive to attract workers. In some cases, state or federal law may require employers to provide severance pay or give 60 days' notice.

The Fair Labor Standards Act (FLSA) does not require severance pay, and it is a matter of agreement between the employer and the employee (or their representative). The Employee Benefits Security Administration (EBSA) can help an employee who has not received the severance pay required in their employment contract. The amount of severance pay is calculated using the beneficiary's basic rate of pay in effect immediately before separation from service. Basic severance pay is equivalent to one week of pay (using the most recent rate) for each year of service up to and including 10 years, plus two weeks of pay (using the most recent rate) for each full year of service over 10 years.

Severance payments must be made at the same pay period intervals at which wage payments would be made if the beneficiary were still employed. Severance payments are subject to appropriate income tax and Social Security deductions. The regulation, contained in 5 CFR 550,709, provides more details on the accrual and payment of severance pay. Severance payments are the responsibility of the agency that employed the beneficiary at the time of the involuntary separation that resulted in the current right to severance pay. The basic wage rate means the wage rate set by law or administrative measure for the position held by the employee, including, as appropriate, the payment of the annual premium for the reserve service, the payment for availability of law enforcement agencies, the direct time payment for regular overtime for firefighters, the differential per night for employees at the current rate, local payments, and special rate supplements.

Cornelius Maxon
Cornelius Maxon

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